Slouching Towards Utopia?: The Economic History of the Twentieth
Century

-XVIII. Falling into World War II-

J. Bradford DeLongUniversity of California at Berkeley and NBER

February 1997

From the Rhineland to Munich

The Nazi-Soviet Pact

The Greater East Asia Co-Prosperity Sphere

The War

What If?

From the Rhineland to Munich

While other countries continued to stagnate in the Great
Depression, the German economy recovered rapidly. But peaceful spending-fueled
recovery was not what Hitler thought his regime was about. His regime was
about German rearmament: the breaking of the shackles of the Treaty of
Versailles that restricted the German military to a total strength of 100,000;
and eventually aggressive war with the Soviet Union and the other powers
to Germany's east with the aim of increasing the "living space"
of the German people.

Hitler announced that Germany was rearming, and met with
no complaints. Did Britain and France want to invade Germany, depose Hitler,
and set up an unstable government bound to be viewed as their puppet in
his place, further inflaming German nationalism? Well yes--they did, had
they but known what was coming. But their political leaders did not. In
the Great Depression French and British political leaders believed that
they had bigger problems than enforcing every provision of the Treaty of
Versailles, that they wished to see Germany rejoin the community of western
European nations. And since armaments were one of the standards prerogatives
of the nation-state, it would be silly in addition to pointless to complain
about Germany building its armed forces above the Versailles limits.

Besides, with Germany effectively disarmed there was a
power vacuum between the border of the Soviet Union and the Rhine River.
Poland and the Soviet Union had fought one war in the early 1920s that
had seen the Red Army approach Warsaw before being turned back. Did French
and British geopoliticians want to see a possible future Soviet war with
Poland end with Communist armies on the Rhine River? Probably not.

In 1936 Hitler broke yet another provision of the Treaty
of Versailles: he moved token military forces into the Rhineland, the province
of Germany west of the Rhine that had been demilitarized after 1918. Once
again it seemed pointless to protest, or to take action. No other European
country had demilitarized zones within its borders. To require that Germany
maintain a demilitarized zone seemed likely to pointlessly inflame German
nationalism. And to enforce the provision would presumably require an invasion
of Germany, the deposition of Hitler, and the installation of a puppet
government--for Hitler seemed genuinely popular: there was a substantial
risk that new elections would simply return Hitler to power.

In the spring of 1938 Hitler annexed Austria. Austria
was inhabited overwhelmingly by ethnic Germans. One principle of the 1919
peace settlement had been, as much as possible and with a few exceptions,
to draw national borders along ethno-linguistic lines so that every language
had a nation, and everyone speaking a given language lived in the same
nation. In annexing Austria, Hitler declared, he was simply gathering the
German people into their one nation: reversing a political error committed
in the late nineteenth century when the Austrian Germans were excluded
from the political boundaries of Germany, an error that would have been
corrected in 1919 save for Allied unwillingness to apply the same national
self-determination principles to the Germans that they had applied to themselves
and to the rest of Europe.

After the annexation of Austria, Hitler turned his attention
to a second of the anomalous boundaries of post-World War I Europe: the
"Sudetenland." The northern and western boundaries of Czechoslovakia
followed the boundaries of the medieval Kingdom of Bohemia, and included
a mountainous region that was the location of all the Czech frontier defenses
and was also heavily populated by German-speakers. It took little for Hitler
to fund a movement in the Sudetenland that decried oppression and discrimination
by Czechs, and that demanded the annexation of the Sudetenland by Germany:
the return of German-speakers to the German nation, according to the national
self-determination principles of the Treaty of Versailles.

The British government had commitments to defend France;
the French governments had commitments to go to war to defend the territorial
integrity of Czechoslovakia; Czechoslovakia had no desire to surrender
its mountain territories--and its frontier defenses. The British and French
governments had no desire to get into a war to prevent the people of the
Sudetenland from becoming part of Germany. Moreover, they feared the costs
of a war. In the worlds of the novelist Alan Furst, they thought that:

The German bomber force as constituted in a theoretical
month--May 1939, for instance--would be able to fly 720 sorties in a single
day... 50,000 casualties in a twenty-four hour period. A million casualties
every three weeks. And the USSR, Britain, and France were in absolute harmony
on one basic assumption: the bomber would always get through. Yes,
anti-aircraft fire and fighter planes would take their toll, but simply
could not cuse sufficient damage to bring the numbers down.

The western democracies' military advisors feared that
World War II would bring the horrors of the World War I trench line to
civilians located far from the front.

They were right.

In order to avoid war, on September 29 and 30, 1938, at
Munich in Germany, British Prime Minister Neville Chamberlain and French
Prime Minister Edouard Daladier reached an agreement with Hitler: Hitler
would annex the Sudetenland, would pledge to respect the independence of
the rest of Czechoslovakia, and Britain and France would guarantee the
independence of Czechoslovakia.

The Czechoslovak representatives were not even allowed
in the room where the negotiations took place.

Upon his return to Britain, after being applauded by a
cheering crowd that saw that general war had been averted, Neville Chamberlain
irretrievably blackened his reputation for all time by saying:

My good friends, this is the second time in our history
[the first time was 1878] that there has come back from Germany to Downing
Street [official residence of the British Prime Ministers] peace with honour.
I believe it is peace in our time.

Winston Churchill--out of office, and shunned by the other
conservative members of the British House of Commons--had a very different
view: better to fight Hitler in 1938 before German rearmament was well
advanced and with Czechoslovakia as an ally, than to fight him later when
Germany was better-armed and Czechoslovakia was gone. In retrospect Churchill
was almost certainly correct. Given what was known about the ruthlessness
and violence of the Nazi regime in its own country, it is hard to credit
Chamberlain's belief that Hitler could be "appeased" and pacified
by the abandonment of the restrictive military clauses of the Treaty of
Versailles and by being allowed to absorb all regions occupied by ethnic
Germans into his state.

On March 15, 1939, Hitler annexed the remains of Czechoslovakia,
after first having sponsored secessionist movement in the "Slovakia"
part of the country. Britain and France took no action. Neville Chamberlain
stated:

The effect of this declaration [of independence by the
Hitler-sponsored secessionist movement] put an end by internal disruption
to the state whose frontiers we had proposed to guarantee [at Munich].
His Majesty's government cannot accordingly hold themselves any longer
bound by this obligation.

In the spring of 1939 Hitler turned his attention to Poland,
where the German-Polish border after World War I had been drawn not with
attention to the ethno-linguisti principle but to give the newly-created
Polish Republic at least one port city, and an outlet to the Baltic Sea.
Hitler once again demanded the redrawing of borders--the elimination of
the "Polish corridor" between the rest of Germany and the province
East Prussia.

Had the British and French diplomatic policy makers been
flinty-eyed realists, they would have shrugged their shoulders: Hitler
wants to go east? Let him go east. They would have concluded that a Hitler
fighting a series of wars to his east was unlikely to cause them trouble
for a while at least. And that if Hitler at some point turned west, then
would be the time to deal with him. But they did not do this. Neville Chamberlain
and company extended guarantees to Poland and Romania: German attacks on
Poland or Romania would cause declarations of war against Germany by Britain
and France. Chamberlain appeared to believe that this commitment would
deter Hitler from further adventures. He and his Foreign Minister, Lord
Halifax, appear to have given no thought to what would happen if deterrence
failed.

The Nazi-Soviet Pact

And it was at this point that Hitler became interested
in a--temporary--alliance with Stalin and the Soviet Union.

Stalin throughout the years of the "Popular Front"
and "collective security," put out feelers to Hitler. Hitler
was not interested. Hitler became interested in a deal with Stalin only
in 1939, when he recognized how useful Soviet neutrality would be for his
conquest of Poland. He and Stalin agreed to split Poland down the middle
at the Bug River, and to give the Soviet Union a green light to annex the
three Baltic Republics of Lithuania, Latvia, and Estonia.

On Stalin's part, this was the mother of all miscalculations.
It allowed Hitler to fight three one-front wars in succession--one against
Poland, one against Britain and France, and then one against the Soviet
Union. Only by the skin of its teeth did the Soviet Union survive until
America entered the war and American armies and air forces made it possible
for an Anglo-American force to reenter the main theaters of the war.

Much better for Stalin and Russia to have fought Germany
in 1939 with powerful British and French allies with armies on the continent
than to, as he had to, face Germany's undivided attention in 1941 when
no other anti-fascist armies were on the continent of Europe, or would
be for two more years. For when Hitler and Stalin together moved into and
partitioned Poland in 1939, Britain and France did carry out their commitments,
and did declare war on Germany. Hitler attacked the Poles at dawn on September
1. After some hesitation the British government demanded at 9 A.M. on September
3 that the German army withdraw from Poland. At 11 A.M. Britain declared
war.

But their forces were unready and were far from Poland,
which fell to Hitler and Stalin in a month. After eight months of quiet
on the western front, France fell in six weeks in 1940. To everyone's surprise,
Britain--by then led to Winston Churchill--did not then negotiate a peace
but kept fighting, daring Hitler to try an invasion across the English
Channel. And in 1941 Hitler turned on the Soviet Union.

If Stalin did not recognize the danger of even a temporary
alliance with Hitler, it was because he was--wrongly--anticipating a replay
of World War I: trench warfare that would lead to a prolonged stalemate
on the Franco-German border, during which another generation of young men
would be turned into hamburger, another set of bourgeois countries would
exhaust themselves, and another group of countries would become ripe for
a Moscow-led Communist revolution.

When war came to the Soviet Union, and Germany attacked
on June 22, 1941, Stalin's first instinct was to tell his troops not to
fire back for fear of "provoking" the Germans. As a result, his
air force was destroyed on the ground in the first day of the war. And
the Soviet armies on the border died (or were taken prisoner) where they
stood. In 1941 nearly four million Soviet troops were captured.

The Greater East Asia Co-Prosperity Sphere

Japan responded to the Great Depression by turning imperialist.

World War I was a powerfu stimulus to Japanese industrialization.
Although the Japanese government honored its alliance with the British
government and declared war on Germany, its military actions during the
war were limited to the largely-peaceful takeover of Pacific islands that
Germany had claimed as colonies. However, exports from Europe to Asia effectively
ceased during World War I. Where were the countries of Asia to purchase
the manufactures that they had purchased from Europe? The growing and industrializing
Japanese empire was an obvious source.

Industrial production and manufactured exports from Japan
nearly quadrupled during World War I. Srong demand for Japanese goods provoked
inflation: prices more than doubled during the war.

After World War I the European economies once again began
to export to Asia, and the newly-expanded Japanese industries faced heavy
competition. The Japanese economy in the first half of the 1920s was also
badly hit by the disaster of the 1923 Tokyo earthquake, in which between
50,000 and 100,000 people died. But industrialization continued. Manufacturing
surpassed agriculture in terms of the share of national product produced
in the 1920s.

Japanese manufacturing originally relied--as had manufacturing
in other countries--on the unmarried young woman as its typical worker.
From the employers' point of view, the main problem with this workforce
was its relative lack of experience. So over the first half of the twentieth
century, Japanese manufacturers worked to try to balance their shor-term
labor pool of unmarried females with a longer-term cadre of experienced
male workers.

What evolved in Japan's industries was what is now called
the "permanent employment system." Male workers were recruited
on leaving school, or as apprentices, and promised effective lifetime employment
and regular increases in wages in return or loyal service to the company.
The company promised wages, medical care, and pension benefits. It is possible
that this "permanent employment system" flourished in Japan because
the system fitted Japanese sociology. It is also possible that Japan avoided
the deep recessions that would have given manufacturing firms the incentive
to fire their "permanent" workers.

Cotton textiles, furniture manufacturing, apparel, and
a relatively small heavy industrial sector were the heart of the Japanese
economy by the 1930s, and this modern manufacturing sector was dominated
by the zaibatsu: associations of businesses that exchanged executives,
cooperated, owned each other's stock, and relied on the same banking and
insurance companies for finance. Japan's form of "financial capitalism"
seemed to mimic Germany's to a large degree.

The Great Depression came to Japan in an attenuated form
in 1930. Its exports, especially of silk, fell dramatically. The gold standard
applied pressure to deflate the economy. Japan responded by cutting loose
from the gold standard, and by expanding government spending--especially
military spending. The Great Depression touched but did not stun the Japanese
economy. More important, perhaps, the Great Depression revealed that the
European imperialist powers were in crisis.

So 1931 saw the Japanese government turn expansionist.
The extension of Japanese influence into Manchuria was followed by a Manchurian
declaration of "independence" as the Japanese client state of
Manchukuo. Expansion was followed by rearmament. Rearmament was followed
by a full-scale attack on China in 1937. Government orders for war material
and for capital goods to construct infrastructure in Manchuria provided
a strong boost to Japanese industrial production at home. From 1937 on
Japan turned to a war economy: warships, airplances, engines, radios, tanks,
and machine guns.

But in order to continue its war against China, Japan
needed oil from either the United States, or from what was to become Indonesia--what
was then the Dutch East Indies. Roosevelt was anxious to exert what pressure
he could on Japan. And in early 1941 the U.S. embargoed exports of oil
to Japan.

Faced with the choice of backing down and abandoning the
conquest of China, or seizing the Dutch-held oil fields of the southwestern
Pacific and probably becoming embroiled in a war with the United States,
the Japanese miliary elected to strike first. On December 7, 1941 atacks
began on British, Dutch, and American forces and possessions in the Pacific.
Most famous was the Japanese attack on Pearl Harbor that sank the battleships
of the U.S. Pacific fleet. Most damaging was probably the attack on the
U.S. airbase of Clark Field in the Philippines, which destroyed the B-17
bomber force that might have blocked Japanese searborne invasions.

The War

World War II in Europe began on September 1, 1939. World
War II in Asia had already been ongoing for more than two years. The range
of belligerents expanded and contracted. In Europe the war began as France,
Britain, and Poland against Germany. Poland was conquered by Germany and
Russia by the end of September, 1939. Russia attacked Finland, which fought
it to a draw and a peace, in the winter and spring of 1940. The spring
of 1940 also saw Germany attack and occupy Norway, Denmark, Belgium, the
Netherlands, and Luxemburg; and conquer France, with Italy joining in on
Germany's side.

By the summer of 1940 only Britain was fighting Germany.

In late 1940 and early 1941 Britain acquired Greece and
Yugoslavia as allies. But they were conquered by Germany by the spring
of 1941.

In the summer of 1941 Germany attacked Russia. And on
December 7, 1941, the Japanese navy bombed Pearl Harbor in Hawaii and attacked
a wide range of U.S., British, and Dutch territories in the Pacific. Germany
declared war on the U.S. a day later. (But, curiously enough, Japan remained
at peace with Russia.) And the war was truly global.

World War II was a "total" war. At its peak,
some 40 percent of U.S. GDP was devoted to the war. Some 60 percent of
British GDP was devoted to the war. Some 50 million--plus or minus 10 million--people
died in, during, and as a result of war.

WORLD WAR II MUNITIONS OUTPUT

(U.S. 1944=100)

Year

United States

United Kingdom

Soviet Union

Nazi Germany

Imperial Japan

1937

1

1

3

2

2

1938

1

2

4

3

3

1939

2

3

6

4

3

1940

6

7

7

8

3

1941

15

10

12

8

4

1942

53

17

22

11

5

1943

91

20

28

17

4

1944

100

19

31

21

3

From 1942 on, once the war had become a truly global war,
Hitler's defeat was nearly inevitable. Even Britain alone was matching
Germany and Nazi-occupied Europe in war production. Throw in the United
States and the Soviet Union, and Germany was outproduced more than eight
to one; Germany and Japan together were outproduced more than six to one.
U.S., British, and Russian armies met in the rubble that had been Germany
in the spring of 1945; Adolf Hitler committed suicide as the Russian armies
closed in on his Berlin command post. Japan, atom-bombed, firebombed, blockaded,
and threatened with invasion, surrendered in the summer of 1945.

When World War II ended, perhaps 40 million in Europe
(and perhaps 10 million in Asia) were dead by violence or starvation. More
than half of the dead were inhabitants of the Soviet Union. But even west
of the post-World War II Soviet border, perhaps one in twenty were killed--close
to one in twelve in Central Europe. In World War I the overwhelming proportion
of those killed had been soldiers. During World War II fewer than half
of those killed were soldiers.

Material damage in World War II was spread over a wider
area than in World War I. Destruction in the First World War was by and
large confined to a narrow belt around a static trenchline. Although material
destruction along the trenchline was overwhelming, it extended over only
a small proportion of the European continent. World War II's battle sites
were scattered more widely. Weapons were a generation more advanced and
more destructive. World War II also saw the first large-scale strategic
bombing campaigns. The aftermath of World War II saw many of Western Europe's
people dead, its capital stock damaged, and the web of market relationships
torn. Relief alone called for much more substantial government expenditures
than reduced tax bases could finance. The post-World War I cycle of hyperinflation
and depression seemed poised to repeat itself. Prices rose in Italy to
35 times their prewar level. France knocked four zeroes off the franc.

What If?

Had World War II gone otherwise, we would live in a very
different world.

Had Franklin D. Roosevelt decided in the spring of 1941
that with Europe ablaze it was unwise for the U.S. to try to use an economic
embargo of militarily-necessary oil to pressure Japan to withdraw from
China, 1945 would probably have seen the U.S. and Japan at peace, the coastal
provinces of China Japanese-occupied colonies, the interior of China an
anarchy, and the prestige of the Japanese military that had established
this co-prosperity sphere greatly heightened.

Had the British and French governments been willing to
use force to remove Hitler when he occupied the Rhineland in 1936, or threatened
Czechoslovakia in 1938, there would have been no World War II in Europe.

Had Stalin allied with Britain and France and declared
war on Germany when Hitler invaded Poland in 1939, in all probability Hitler
would have been crushed and World War II in Europe ended by the end of
1941.

Had anyone other than Winston Churchill become British
Prime Minister in 1940--had Nevile Chamberlain remained, or had Lord Halifax
assumed the post--then the British government would almost surely have
negotiated a separate peace with Germany in 1940. When Germany attacked
Russia in 1941, it would have done so with its full strength. Stalin's
regime would probably have collapsed, and European Russia up to the Urals
(and perhaps beyond) have become German territories, colonies, or puppet
states.

It is not likely that Hitler would have refrained from
attacking Russia in any possible universe. The need to do so was buried
too deeply in his world view to be denied.

Last, what if Hitler had not declared war on the United
States in 1941? Would Roosevelt have been able to get congress to declare
war on Germany on the grounds taht all the Axis powers were allied, or
would congress have insisted on concentrating on fighting Japan first?
If the second, then would Britain and Russia have been able to defeat Germany
by themselves, or would 1945 have seen the United States dominant in the
Pacific and Germany dominant in Europe?

We do not know. We do know that most of the alternative
ways that World War II might have gone would trade a postwar period with
a Communist evil empire centered in Moscow and dominant over eastern Europe
for a postwar period with a Nazi evil empire centered in Berlin and dominant
over all Europe, or perhaps Eurasia. Not an improvement.

We are very lucky that World War II was not even worse
for humanity than it was.

from "September 1, 1939"

by W.H. Auden

I sit in one of the dives
On Fifty-second Street
Uncertain and afraid
As the clever hopes expire
Of a low dishonest decade:
Waves of anger and of fear
Circulate over the bright
And darkened lands of the earth,
Obsessing our private lives;
The unmentionable odor of death
Offends the September night.

Accurate scholarship can
Unearth the whole offence
From Luther until now
That has driven a culture mad,
Find what occurred at Linz,
What huge imago made
A psychopathic god:
I and the public know
What all schoolchildren learn,
Those to whom evil is done
Do evil in return...